Aug 2005 Financial News

Oil bubbles above $64

Aug 19, 2005

LONDON (Reuters) - Oil regained some upward momentum Friday, nudging back above $64 as lingering worries over tight U.S. gasoline supplies, a halt in Ecuador's oil exports and an apparent rocket attack in Jordan helped the market bounce back from a mid-week rout.

Oil tumbled this week on signs soaring crude prices were firing inflation and dampening company earnings.

But early Friday U.S. crude for September delivery rose $1.15 to $64.42 a barrel in electronic trading as traders considered upside risks ahead of the weekend. London Brent crude for October gained 96 cents to $63.36 a barrel.

Although the peak-demand U.S. driving season has only two weeks left to run, unusually low inventories of gasoline and a series of refinery glitches kept dealers on edge.

"Overall, the supply levels are tight and constantly bullish to the market," said Kazunaga Maeno, a risk management official with Mitsubishi Corp. in Tokyo.

Analysts at Refco wrote: "Any disruption to supply either on the refinery side or on the crude side could very quickly produce a sharp reversal back toward $65 for crude."

U.S. gasoline stocks fell more sharply than expected last week to stay near the bottom of their normal seasonal range.

Crude oil prices have more than doubled in the past two years on worries the industry has insufficient capacity to pump and refine enough oil to satisfy demand from the world's top two consumers, the United States and China.

Disruptions
While world crude oil inventories remain relatively robust, supply disruptions have traders on alert, including below-par production in India and the North Sea after outages last month.

OPEC, pumping at its highest rate in a quarter century, has little spare capacity to make up any shortfalls.

Ecuador worsened the lost supply by announcing it had halted exports of about 144,000 barrels per day, most of which go to the United States, due to protests in Amazon provinces over the level of investment from foreign operators.

With many oil companies opting to return windfall profits to shareholders or sit on growing cash piles, instead of investing in new refineries or exploration efforts, some analysts see little relief from current prices in the years to come.

Top financial energy trader Goldman Sachs said on Thursday it expected crude oil to average around $60 a barrel in about five years, $15 above its previous forecast.

Merrill Lynch hiked its long-term forecast by 40 percent on Friday, but said it expected only $42-a-barrel crude toward the end of this decade, illustrating the widely different views on how the industry would respond to booming prices.

"In our view, recent strength has been driven by short-term supply disruptions and renewed geopolitical tensions. Longer-term, we believe $60 a barrel oil is unsustainable and expect prices to retrace," Merrill Lynch said.

A blast reported at the Aqaba port of Jordan, an oil importing nation, reminded dealers of the potential threat to supplies from major OPEC producers in the Middle East.

One Jordanian soldier was killed and a second severely injured when a rocket struck a warehouse used by the Jordanian military in the

Red Sea port city of Aqaba, Jordan's government said.

The Katyusha rocket was one of three fired from a warehouse close to Aqaba port, according to a government statement. The warehouse had been rented a few days ago by four people of Iraqi and Egyptian descent, the statement said.

The first rocket flew over the bow of a U.S. military ship in port at Aqaba before striking the warehouse.

-- CNN contributed to this report.